Regulatory Oversight: Chairman Mike Crapo (R-Idaho) noted that several actions were required of Wells Fargo by regulators, including establishing a compliance committee and sales practice risk management, and asked if the regulators have been involved since the initial incident. Wells Fargo’s Timothy Sloan replied that the bank is in an “active dialog” with the Federal Reserve (Fed), Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB). He continued that through this dialog, Wells Fargo has made fundamental changes, such as centralizing all enterprise risk and control activities, hiring a new compliance officer and creating a new compliance plan, as well as creating a conduct office that independently handles issues.

Mandatory Arbitration: Several Democratic Senators stated corporate arbitration policies give the advantage in dispute resolution to companies, to which Sloan cited a CFPB study that found arbitration is fast and efficient for consumers, often resulting in better returns and resolutions.

Improvements the Past Year: There was bipartisan interest related to what the company has done to ensure the unauthorized opening of accounts does not recur. Sloan explained that while he “can’t promise perfection,” Wells Fargo is working to get “near perfection.” He explained that the company is reviewing their processes and procedures, echoing his earlier comments that the firm has “fundamentally changed culture,” and ended their previous incentive-based plans.

In his opening statement, Crapo stated that Wells Fargo has needed to take necessary action to restore the trust of its customers and the public, including identifying and addressing concerns, and that new developments in the situation merit further scrutiny. Crapo said the company would now need to answer new questions, particularly about what has been done so far, whether new policies and procedures have been effective, and the involvement of regulators in the process.

In his opening statement, Brown expressed concern that problems at Wells Fargo are “much larger” and “more systemic” than originally disclosed, and that more must be done to reform the corporate culture that led to the opening of unauthorized accounts. Brown also addressed his concerns about the use of forced arbitration, auto insurance policies, restitution for overdraft fees on unauthorized accounts, and executive compensation.

Testimony

Timothy J. Sloan, Chief Executive Officer and President, Wells Fargo & CompanyIn his testimony, Sloan said that Wells Fargo deserved criticism, and was “deeply sorry” for letting down its customers and employees. Sloan acknowledged the company acted slowly and incrementally when more should have been done to address the issue, and that Wells Fargo is a “better bank today than it was a year ago, and next year it will be a better bank than it is today,” and is determined to earn back the public’s trust. Sloan addressed the compensation it is paying to affected customers, changes in leadership, the implementation of internal and third-party audits, and the banks work with credit reporting agencies to address to concerns and impact. Sloan pledged to continue with these measures until Wells Fargo has restored the public trust and made the company the “finest and most ethical it can be.”

Question & Answer

Credit Scores

Crapo asked how Wells Fargo is identifying where credit scores were negatively impacted by the unauthorized accounts. Sloan replied that they have gone to the credit bureaus with names of customers who may have been affected, and that Wells Fargo has contacted 43.5 million customers to inform them they can come to a branch to fix any problems with their credit that happened due to such accounts.

Sen. John Kennedy (R-La.) asked if consumers’ credit has been impacted by the fraud, to which Sloan replied that so far it has not been for deposit accounts, but that credit card accounts may have been impacted, adding that the bank is “working to fix it.”

Regulatory OversightCrapo noted that several actions were required of Wells Fargo by regulators, to include establishing a compliance committee and sales practice risk management, and asked if the regulators have been involved since the initial incident. Sloan replied that Wells Fargo is in an “active dialog” with the Federal Reserve (Fed), Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB). He continued that through this dialog, Wells Fargo has made fundamental changes, such as centralizing all enterprise risk and control activities, hiring a new compliance officer and creating a new compliance plan, as well as creating a conduct office that independently handles issues.

Mandatory Arbitration

Brown criticized the bank for using forced arbitration to keep the fraud hidden, and asked Sloan to commit to eliminating mandatory arbitration. Sloan would not commit, explaining that Wells Fargo has made changes to make sure products and services are appropriate for customers, as well as improving employee training for sales. He added that the company is committed to trying to resolve complaints immediately and completely, and are willing to pay for an outside mediator to resolve complaints the firm cannot.

Several Democratic Senators stated that the company’s arbitration policies give the advantage to Wells Fargo, to which Sloan cited a CFPB study that found arbitration is fast and efficient for consumers, often resulting in better returns and resolutions.

Improvements the Past YearThere was bipartisan interest related to what the company has done to ensure that the company prevents its previous missteps from reoccurring. Sloan explained that while he “can’t promise perfection,” Wells Fargo is working to get “near perfection.” He explained that the company is reviewing their processes and procedures, echoing his earlier comments that the firm has “fundamentally changed culture,” and ended their previous incentive plan.

Sen. Thom Tillis (R-N.C.) asked how Wells Fargo is best managing the time for consumers dealing with account fraud, to which Sloan replied that 41,000 customers have come to branches to have their accounts fixed, and if they could not be done immediately, the bank has paid for mediation services.

Incentive CompensationSen. Tom Cotton (R-Ark.) asked if there is a risk of possible other “misaligned incentives” within the company that executive management is not aware of. Sloan replied that there is “relatively low” risk, as they have looked at incentive compensation throughout the company, in addition to bringing in independent third parties that give reports to senior management, the Board of Directors, and regulators.